Delhi State Consumer Commission Holds Kotak Mahindra Bank Deficient For Auctioning Pledged Gold Jewellery Without Contractual Authority
Pranav B Prem
The Delhi State Consumer Disputes Redressal Commission has dismissed an appeal filed by Kotak Mahindra Bank Ltd and upheld the finding of deficiency in service against the Bank for auctioning a borrower’s pledged gold jewellery without any contractual authority. The Commission held that the sanction letter governing the gold loan did not authorise auction of the mortgaged ornaments in the event of default, rendering the Bank’s action legally unsustainable
The Bench comprising Justice Sangita Dhingra Sehgal (President) and Ms. Bimla Kumari (Member) agreed with the conclusions of the District Consumer Commission and found no reason to interfere with the impugned order. The complaint was filed by Mrs. Sarmila Sharma, who had availed a gold loan of ₹77,000 from Kotak Mahindra Bank on February 29, 2020, for construction of her house. The loan was secured by pledging 35.90 grams of gold jewellery, which was valued at ₹1,04,103.41 at the time of mortgage. Between March 15, 2020 and January 15, 2022, the complainant deposited a total sum of ₹29,097.59 towards repayment of the loan.
According to the complainant, she received a letter dated October 27, 2021, intimating that failure to pay interest of ₹3,260 would result in sale or auction of the pledged jewellery. The complainant paid the said interest amount on the very same date. Despite this, the Bank allegedly auctioned the pledged gold ornaments on March 30, 2022, a fact which, as per the complainant, came to her knowledge only on July 26, 2022.
Aggrieved by the auction, the complainant approached the District Consumer Disputes Redressal Commission alleging deficiency in service and unfair trade practice. She specifically contended that no prior notice of auction was issued and that no details regarding the date, rate or manner of sale of the jewellery were disclosed. She sought refund of the loss suffered, compensation for mental harassment, interest and litigation costs.
The District Commission noted that although the Bank had collected a copy of the complaint, it failed to file any written statement or contest the proceedings, resulting in the complainant’s version remaining uncontroverted. Relying on settled principles that a borrower has a right to be informed of the auction process, including the rate and date of sale, the District Commission held the Bank guilty of deficiency in service and directed it to pay the value of 35.90 grams of gold at the prevailing market rate, after adjusting outstanding dues.
Challenging this order, Kotak Mahindra Bank preferred an appeal before the State Commission. The Bank argued that the complainant had accepted the terms and conditions of the sanction letter dated February 29, 2020, and that a loan recall notice dated February 17, 2022 had been issued due to non-payment of dues. It was further contended that the auction was conducted in accordance with law and that, after adjustment of dues, an excess amount of ₹9,357.17 remained, which the complainant was asked to collect.
After examining the record, the State Commission referred to the definition of “deficiency” under Section 2(11) of the Consumer Protection Act, 2019, which includes any fault, omission or deliberate withholding of relevant information by a service provider. The Commission noted that although a loan recall notice had been issued, the sanction letter dated February 29, 2020 did not contain any clause authorising auction of the mortgaged jewellery in case of default.
The Commission held that in the absence of any contractual provision permitting auction, the Bank failed to establish any legal basis for selling the pledged ornaments. It observed that the Bank’s submission that there was no deficiency in service was untenable, particularly when the borrower was not informed of the auction details, including the rate and date of sale.
Agreeing with the reasoning of the District Commission, the State Commission held that the Bank’s conduct amounted to deficiency in service. Finding no illegality or infirmity in the impugned order, the Commission dismissed the appeal filed by Kotak Mahindra Bank Ltd. and upheld the directions issued by the District Commission. The ruling reiterates that banks must strictly act within the four corners of the loan agreement while enforcing security and that auction of pledged assets without contractual authority or due notice to the borrower amounts to deficiency in service under consumer law.
Cause Title: Kotak Mahindra Bank Ltd. vs. Mrs. Sarmila Sharma
Case No: FA/191/2024
Coram: Justice Sangita Dhingra Sehgal (President) and Ms. Bimla Kumari (Member)
